News / Economy

Fear of Bubble as Sanctions Stoke Iran Property Boom

FILE - General view of housing complexes in northwestern Tehran, February 2011.
FILE - General view of housing complexes in northwestern Tehran, February 2011.
Reuters
The Iranian property developer leant back in his chair, drew hard on a shisha pipe and looked down at photographs of a Tehran apartment block on his tablet computer.
 
"I designed it myself," he said proudly as he blew a cloud of scented smoke out into Dubai's night air.
 
The pictures showed the lavish interiors of apartments and penthouse suites in a 20-floor development his company recently completed in Niavaran, one of the Iranian capital's wealthiest areas, with views towards mountains to the north.
 
One of many towers to have sprung up on the Tehran skyline in recent years, it is part of a property boom due indirectly to sanctions imposed by the United States and its allies against the Islamic Republic over its nuclear activities.
 
While the sanctions threaten to bring the Iranian economy to its knees, million-dollar apartments fitted out with the best imported equipment have become ever more common in Tehran.
 
Embargoes imposed on the oil and banking sectors since late 2011 have sent the Iranian rial currency crashing, pushing up import prices and contributing to spiraling overall inflation.
 
Wealthy Iranians, often unable to move money abroad due to the banking sanctions, have tried to protect their savings by turning to property at home, further stoking the market.
 
Developers have reaped the rewards but some now believe a bubble is forming and fear the consequences should it burst. For poorer Iranians, the boom is creating more immediate problems as it stretches their ability to provide for their families.
 
"Until around two years ago, the market rose steadily. Then it started going crazy," the developer said on a visit to Dubai.
 
"You can't believe how quickly everything's gone up," he said, asking not to be named.
 
The cost of apartments in his developments — among the most sought after in Tehran — have almost tripled in two years, he said. They now sell for about 200 million rials ($5,500) a square meter, and even his medium-sized apartments cost the local currency equivalent of $1 million.
 
Property inflation has spread across Tehran and is now being felt around the country, say investors, estate agents and prospective buyers.
 
"Prices have gone up drastically in recent months," said Hooman Bina, a Tehran-based professional property investor. "There's even been a hike since Persian New Year [on March 20]."
 
Demand Vs. Costs

Iranian manufacturing is grinding to a near halt and unemployment is rising. In April the International Monetary Fund forecast the economy would shrink 1.3 percent this year. This has left investors with few opportunities beyond construction, and estate agents say it is a seller's market.
 
"A lot of people have started buying places, especially small apartments, just to protect the value of their money. Real estate looks like a safe investment, at least for now," said a Tehran-based analyst who — like many Iranians in the current sensitive political atmosphere — did not want his name to appear in international media.
 
Everything from the cost of land to equipment for new homes has soared.

"The materials used in houses such as air conditioners, elevators, wood, iron and steel, especially in buildings in northern Tehran, are of very high quality and imported from abroad," said Bina. "Everything imported is much more expensive now."
 
With the rial at 36,000 to the dollar in the open market, Iran's currency is around a third of the value it had in mid-2011, making imported goods far more expensive.
 
To sell million-dollar apartments in plush areas of northern Tehran, developers need to provide the best fittings on the market. Despite the sanctions, top quality European products such as Poggenpohl kitchens and Siemens white goods from Germany are available alongside even some American ones.
 
Those Iranians with access to hard currency are in the best position of all. Their dollars or dirhams go as far as they did in 2011, and in some cases farther, because the U.S. and Gulf currencies held their value while the rial plunged.
 
"I'd been meaning to upgrade my apartment and this is a great opportunity," said an Iranian businessman looking out over Dubai from his 18th floor office. He settled in the United Arab Emirates 20 years ago but regularly visits Tehran on business.
 
Out of Reach

As with every boom, many are missing out and struggling to afford a home as grocery and fuel prices also soar, however. After saving for 10 years, Mohammad Hossein's hopes of buying a family home are further away than ever.
 
Worse still, the surge has also pushed up rents and the 38-year-old shoe factory worker has had to move with his wife and infant to a smaller apartment in Tehran because the family could not afford the landlord's demand for an increase.
 
"Prices have gone up so much that people like us can only afford to buy or rent an apartment half the size of what they could afford with that same money two years ago," Hossein said.
 
Iran has an unusual rental system, called rahn, in which a tenant "lends" the landlord a sizeable sum, sometimes with a modest monthly rent. The landlord uses the money as an interest-free loan — a valuable commodity when annual interest rates are around 20 percent — before returning it after an agreed period.
 
When 28-year-old graphics graduate Parastoo moved to Tehran earlier this year, she soon found out her budget could not keep up with the rents. Eventually she found a 51-square-meter (550-square-foot) apartment in central Tehran, paying rahn of 385 million rials ($11,000) in addition to a monthly rent of 2.5 million rials.
 
"It was a real struggle," said Parastoo, who spoke by phone from Tehran and asked to be identified only by her given name. "The owner of my apartment originally wanted to sell it but because of the daily fluctuations in price he decided to rent and wait for prices to stabilize."
 
Decimated economy

Iran's property phenomenon reflects just how badly the economy is suffering from "stagflation" — zero growth alongside high inflation and increasing unemployment.
 
According to official figures, inflation is running at more than 30 percent but some analysts estimate the real rate could be double or even triple that.
 
"Iran has definitely entered an era of stagflation. It's very vulnerable and its own economic policy has not helped," said Steve Hanker, professor of applied economics at Johns Hopkins University in Baltimore, who estimates annual inflation at over 100 percent. "Without oil, everything would collapse overnight."
 
For those in the business, the rapid property inflation has now become worrying. The national union of property advisers says that in the second half of the Persian year [up to March 20], prices went up more than the rate of inflation.
 
"The purchasing power of prospective buyers is going down with the increased rates," said union head Mustafa Khosravi as quoted by Mehr news. "We want to see price stability because this leads to increased prosperity in the market."
 
Real estate agents say business has slowed in recent weeks and speculate this may be due to uncertainty before a presidential election in June to elect a successor to Mahmoud Ahmadinejad. The outcome is far from clear.
 
With fluctuations in the market and the ensuing difficulty of planning large-scale construction, the developer in Dubai said he had halted projects in Iran and was proceeding with caution.
 
"The country has stopped. Nothing's moving but inflation's still going up," he said. "It's a bubble and I don't know what will happen."

You May Like

Turkey's Erdogan: Women Not Equal to Men

Speaking at conference in Istanbul, President Erdogan says Islam has defined a position for women: motherhood More

Ahead of SAARC Summit, Subdued Expectations

Some regional analysts say distrust between Pakistani, Indian officials has slowed SAARC's progress over the year More

Philippines Leery of Development on Reef Reclamation in S. China Sea

Chinese land reclamation projects in area have been ongoing for years, but new satellite imagery reportedly shows China’s massive construction project More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Changei
X
November 24, 2014 10:09 PM
Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8048
JPY
USD
118.04
GBP
USD
0.6382
CAD
USD
1.1270
INR
USD
61.892

Rates may not be current.